How the Economic Machine Works in 30 Minutes

http://www.youtube.com/watch?v=PHe0bXAIuk0

The attached link will take you to a YouTube video by Ray Dalio of Bridgewater Associates.  He has done the impossible by creating an interesting video about what most people would consider a boring subject; and did it in only 30 minutes.  Of course, I think the subject is interesting, but I tend to be a little odd.  In the video Mr. Dalio, in very simple terms, discusses his framework behind how he thinks about the economy and how the economy works.  He does a fantastic job of taking a complicated subject and making it easy to understand, fun, and accurate. 

I hope you enjoy.

Fortune's Formula by William Poundstone

Fortune’s Formula by William Poundstone

I just finished reading the book Fortune’s Formula by William Poundstone.  It is an entertaining book that provides the history behind the “Kelly Criterion”.  While I would not put this in the required reading category, the subject matter may be added to that list and I would still recommend reading the book.  For a younger investor, like me, it provided some historical knowledge and background that I was not aware of.  More importantly, the reason why I bought the book was to see if I wanted to further investigate the Kelly Criterion.  It was a great primer on the Kelly System and after reading this book I have decided that I will learn more about the subject matter as I think it may be quite useful. 

According to Wikipedia the Kelly Criterion is “a formula used to determine the optimal size of a series of bets. In most gambling scenarios, and some investing scenarios under some simplifying assumptions, the Kelly strategy will do better than any essentially different strategy in the long run.”  For my purposes I was looking to improve how I weight investments to create a higher absolute long-term return.  The Kelly Criterion is a way to do this.  It is not perfect because my assumptions (inputs) into the formulas will not be perfect and the only risk it takes into consideration is the risk of complete ruin.  Different weighting systems look at volatility as risk and for many people this is a real risk as they do not have the willingness to handle volatility.  However, I think of volatility as an opportunity and am looking for maximum long-term returns, which goes hand-in-hand with the Kelly system.  So, at least for my personal account the Kelly system would appear to be a perfect match.

For those looking to get a primer on the Kelly Criterion, learn about optimal position sizing, and get a history lesson this is an good book to read.  Plus it is an easy read and entertaining.

Fortune's Formula: The Untold Story of the Scientific Betting System That Beat the Casinos and Wall Street

Book: The Outsiders

“Leadership is analysis” - William Stiritz

I recently finished a book called “The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success” by William Thorndike, Jr. ( http://www.amazon.com/The-Outsiders-Unconventional-Radically-Blueprint/dp/1422162672/ref=sr_1_3?ie=UTF8&qid=1378951419&sr=8-3&keywords=The+Outsiders).  It is a fantastic book that explains why companies and CEO’s that focus on capital allocation have had great success. I have discussed this idea earlier in my “Capital Allocators” post. Nothing in the book was revolutionary to me as I already am a believer and user of what the author points out, however I did learn a lot about the history behind several companies and people.  For those that are less familiar with why capital allocation is so important this book is a must read and should be an eye opener. Some of the important points in the book are the following:

- As a group they shared old-fashioned, pre-modern values including frugality, humility, independence, and an unusual combination of conservatism and boldness. 

- Hedgehogs know one thing and do it well, but foxes have connections across fields and to innovate, this book is about foxes. 
- They were not blindly contrarian.
- These managers avoided the institutional imperative.
-  These eight CEO’s were not charismatic visionaries, nor were they drawn to grandiose strategic pronouncements.  They were practical and agnostic in temperament, and they systematically tuned out the noise of conventional wisdom. 
-  They disdained dividends, made disciplined occasionally large acquisitions, used leverage selectively, bought back a lot of stock, minimized taxes, ran decentralized organizations, and focused on cash flow over reported net income.

 If you get the book pages 218-220 provide a better summary of the books key points.  If I were creating a curriculum for students about investing this would be required reading. 

If you would like to buy the book please click on the link below and it will take you to my Amazon Store. You will NOT be charged extra for going through my store.

The Outsiders: Eight Unconventional CEOs and Their Radically Rational Blueprint for Success